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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 71

True/False

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Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.

A) True
B) False

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Question 72

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Bondholders claims on the assets of the corporation rank ahead of stockholders.

A) True
B) False

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Question 73

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The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

On the first day of the fiscal year, a company issues a $800,000, 6%, 5 year bond that pays semi-annual interest of $24,000 ($800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

When the market rate of interest was 11%, Valley Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be

A corporation issues for cash $10,000,000 of 8%, 30-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amoritization of the bond premium (by straight-line method) for the year by Orange Inc. includes a credit to:

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

A bond indenture is

Bonds of major corporations are traded on bond exchanges.

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price, the bonds are

The present value of the periodic bond interest payments is the value today of the amount of interest to be received at the at the end of each interest period.

When the maturities of a bond issue are spread over several dates, the bonds are called

The entry to record the amortization of a premium on bonds payable on an interest payment date includes:

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.